Three decades after the late sportscaster Howard Cosell uttered the infamous cry, “The Bronx is burning!” during the 1978 World Series at Yankee Stadium, the New York City borough is at last enjoying a renaissance.
Over the past six years, $7 billion has been pumped into the economy of The Bronx, where desperate landlords once torched their own properties to collect insurance funds after they could not afford to heat the buildings. Today, more than $2 billion worth of real estate projects are being developed.
But even as workers build a new $800 million Yankee Stadium, and Manhattan-based Related Cos. erects a $500 million shopping center to house national retailers, the nation's economic slowdown and a wave of local foreclosures connected to subprime lending are threatening to chill the borough's long-awaited comeback.
Today's burning question: Can the Bronx keep its commercial momentum despite the slowing economy?
“We along with the rest of the country are holding our breath,” says Bronx Borough President Adolfo Carrión Jr. He hopes that decisive federal action will stave off recession and allow the progress to continue.
“Some people have described what we're going through now as the largest boom since the 1920s,” says Carrión, who took office in 2002. Since then, 35,000 housing units have been built, he says. According to a report issued in January, nearly $1.6 billion was invested in borough property in 2007, 65% of it in multifamily and other housing, 27% in institutional and 8% in commercial land uses.
“We are climbing out of the terrible period of the 1970s and '80s,” when residents fled their scorched neighborhoods during a period of violence and unrest tied to a stagnant economy. “I think what we're seeing now is people coming back,” the borough president says.
Retail stars line up
Related's new Gateway Center at Bronx Terminal Market, located on the site of an old food distribution point, forms a key element of the current transformation. Scheduled for completion in fall 2009, the 1 million sq. ft. project is on track to unveil new Target, Home Depot, Best Buy, Bed Bath & Beyond and other stores and restaurants.
Related just completed a $57 million mixed-use project, a two-story, 170,000 sq. ft. building with stores and offices, including the New York City Department of Finance. The firm bought the city-owned land for $1 in a deal arranged by the city's Economic Development Corp., which also gave Related a $4 million low-interest loan. Another city agency offered an additional $1.8 million in tax and real estate benefits.
“Related built probably the biggest and hottest building in recent times in Manhattan, the Time Warner building,” observes Joseph French, a Sperry Van Ness real estate broker who grew up in The Bronx. “For them to come out here and be involved — it's just a sign of the times.”
Carrión helped make the Gateway deal happen, after the terminal market deteriorated when the holder of a city-authorized, 99-year lease failed to maintain the property.
“By the time I became borough president, occupancy was less than 50% at the terminal market. So I made the critical decision that we should convert that market into a retail center of 1 million sq. ft., rather than try to break the lease — for over 30 years the city had tried to break the lease with this guy.”
After the elderly leaseholder died, his family was persuaded to sell the balance of the lease value, almost 70 years, Carrión says. That $42 million sale proved highly lucrative for the beneficiaries, and the lease transferred to Related, the borough president notes. The deal became a cornerstone of the borough's strategy for improvement.
Clamoring for stores
Next year marks the 100th anniversary of the street once considered the Park Avenue of the Bronx, the Grand Concourse. Modeled after the Champs Elysees in Paris and lined with Art Deco buildings, the Concourse still floods with shoppers as one of several vibrant retail districts in the borough.
Along the Concourse some retail spaces command rents of more than $100 per sq. ft., while other areas get $35 to $50 per sq. ft., says Marco Lala, managing director of Massey Knakal Realty Services in New York. In Little Italy, retail space can run $65 to $75 per sq. ft., Lala says. “But if you veer off a few blocks to side streets and less traveled thoroughfares, you could see rents drop off 50%.”
Despite the healthy pockets, the Bronx is underserved in the retail sector and residents are hungry for new outlets, says Peter Fine, principal of New York-based Atlantic Development Group.
Fine, whose 13-year-old company has developed more than 5,500 housing units and about 200,000 sq. ft. of retail, has another 1,500 units under construction and plans to start 1,000 additional units later this year. Atlantic holds four of the top 10 spots for the borough's largest 2007 residential projects; its investment totals $111 million.
The son of a New York City Yellow Cab driver and grandson of immigrants who could neither read nor write, Fine grew up in a public housing project, earned a bachelor's degree at New York University and pursued a doctorate in sociology. Then he went on to build 45 buildings in the Bronx, specializing in affordable housing.
His firm is creating a new campus for the 34-year-old Boricua College, a private, four-year liberal arts school for working adults. The 14-story building will occupy 120,000 sq. ft. in the Melrose district, with completion slated for late 2009. Adjacent, Boricua Village will offer 750 affordable-to-moderate housing units and up to 50,000 sq. ft. of retail space, Fine says. “We helped raise about $45 million to build the college, and I feel particularly gratified that we were able to pull that off.”
The college is part of the renaissance, Fine says, evidence of a blossoming culture that did not exist 10 or 15 years ago. And land values reflect the change.
“You used to be able to buy land for development in The Bronx very, very cheap. I think the first piece of land we bought in The Bronx in 1996 we paid about $75,000 for an apartment building, about 75,000 sq. ft.,” Fine says. “Today, that same piece of land would probably cost us more than $2 million.”
A new housing trend?
Much of the housing in The Bronx is backed by the government. From 2002 to 2007, a large majority of new units were subsidized, according to a 2008 report. But in 2007, for the first time in six years, fewer than half the new units — 41% — received subsidies, indicating new demand for market-rate housing.
Policemen, firemen, teachers and other workers call The Bronx home. Most cannot afford the high rents of Manhattan, where landlords can easily demand $2,000 per month for a one-bedroom apartment, while a comparable unit in The Bronx may rent for less than $1,000.
Available housing is predominantly rental; condo projects are rare, and conventional wisdom has been that the local market cannot support for-sale, market-rate units.
Many neighborhoods are dotted with two- or three-family homes where some families have lived for generations, occupying a flat and renting out the other units. Some buildings have a retail shop on the ground floor.
A path for immigrants
The borough is diverse, offering rolling hills and million-dollar homes in the Riverdale section, and tenements just blocks away. “That's the beauty of The Bronx — there's a whole range of demographics, which provides a stepping stone for a lot of immigrants,” says Lala. “My parents are Albanian and Italian. My Dad owned a little six-family on Valentine Avenue. We brought all our relatives over, and they lived in the building.”
He recently discovered that several of his clients got their start in commercial real estate after his parents loaned them money to buy their first property 30 years ago. “Now they're huge landlords with 20, 30 buildings,” says Lala.
“Real estate in the Bronx is almost a crystallization of the American Dream,” he notes. “A lot of people came here that worked as supers or building attendants and many of them stayed, lived in one apartment, saved their money and were able to buy their first property and then just leveraged from there.”
Decades later, some are selling the properties. Lala's firm transacted nearly 70 commercial property deals last year. And with the wave of new development, many owners of older properties are considering selling, he says.
Desperados spark a revival
Some properties sold today played a part in the history of The Bronx. The recent sale of the 132,000 sq. ft. Cross Bronx supermarket-anchored shopping center to Ashkenazy Acquisition Corp. evoked memories of the turbulent 1970s, says French, the broker who leased the shopping center to commercial tenants.
The neighborhood was depicted in the film Fort Apache, The Bronx, according to French. During the oil shortage of the 1970s when fuel prices soared, many landlords could not afford to heat their buildings, and set them afire to collect the insurance money. “They would burn their apartment buildings,” French says, leaving tenants stranded.
“The Bronx looked like a bombed out city,” says Marcia Rose Yawitz, senior director at Eastern Consolidated, a 25-year-old commercial real estate firm.
One group of women fought back against the landlords, says French. Calling themselves the “Mid-Bronx Desperados,” they tried to prevent landlords from torching the apartments. “They stayed up all night. They formed groups in their buildings to keep the landlords from burning them by always having somebody on guard all night long.”
Later, the women started a community development group and built over 3,000 units in what is now the South Bronx, spurring its revival. And the group went on to build the shopping center that Ashkenazy bought, says French.
Valuations are going up, says Yawitz. “Years ago you could buy The Bronx at four times the rent roll. Now you're buying The Bronx at eight to nine times — 10 is pushing.”
As for returns, the Bronx probably has a capitalization rate of 6%, she says, while Manhattan is selling at 3% or 4%. Cap rates are likely to increase with tighter financing, Yawitz believes, since banks are only lending on balance sheet and appraisal values.
In February, Yawitz closed a $24.5 million portfolio deal, selling six buildings with 175 residential units and retail space. “We're seeing demand in general for occupied residential buildings, because the Bronx is coming back as a borough,” she says.
French agrees. “The buyers are standing in line. If you have [a property for sale] that makes sense, you'll have a bidding war on it.”
Reading the tea leaves
What will happen in the remainder of 2008, as economic storm clouds gather, is anyone's guess, but Borough President Carrión is prepared for setbacks.
“I think there will be a more timid approach to new development,” he says. “Obviously we have projects that are well underway that will be completed. The financing is in place, the construction is underway. But I think there is going to be a slowdown of new development.”
As for land values, he expects an adjustment. “There's going to be a correction. Land values in every part of the country were assessed upward as part of this real estate hysteria, and the risks that investors or banks were taking,” he says. “I believe there is going to be either a freeze, or a reversal — there's going to be a depression on value.”
The effect on the borough's resurgence is hard to predict, Carrión says. “Nobody thought Bear Stearns would be valued at $20 billion a few weeks ago, $3.5 billion on Friday afternoon, and then sell for less than a tenth of that on Sunday night” in mid-March. The Bear Stearns sale price later changed to $10 per share.
But brokers and developers who have witnessed recent deals remain encouraged. “On the national scene there's a lot of doom and gloom talk,” says Lala. But New York may have a special dispensation from the gloom. “We're almost in a negative vacancy rate here. There are just waiting lists.”
Denise Kalette is senior associate editor.
BRONX - BY THE NUMBERS
Jacobi Medical Center
Bronx Lebanon Hospital
Source: Bronx Borough President's Office
Source: U.S. Census Bureau
Source: New York State Department of Labor
RESIDENTIAL VITAL SIGNS
0.8% vacancy, 4Q 2007
1.4% vacancy, 4Q 2006
$1,004 effective rent, 4Q 2007
$939 effective rent, 4Q 2006
A MAJOR PROJECT
St. Barnabas Hospital: The 461-bed acute care hospital plans to build a 66,350 sq. ft. outpatient center at 2050 Grand Concourse in The Bronx. The new 10-story facility will offer radiology and other services. The hospital is owned by St. Barnabas Community Enterprises, a not-for-profit corporation that has several subsidiaries, including a nursing home. The hospital had 26,000 admissions, 97,500 emergency room visits, and 167,700 ambulatory care visits in 2006.
Developer: St. Barnabas
Cost: $50 million
Fordham University classrooms: Fordham is building two new classroom buildings at 403/405 East Fordham Road in The Bronx. Each building will be 83,000 sq. ft. Fordham, a private university, has more than 8,000 undergraduate and 7,000 graduate students at its three New York-area campuses. The classrooms are adjacent to a new, 284,955 sq. ft. mixed-use project of offices and shops being built near the North Fordham train station.
Developer: Fordham University
Cost: $50 million
BORICUA COLLEGE: Atlantic Development Group is building a 120,000 sq. ft. liberal arts college for adults at 890 Washington Ave. The school now has 1,200 students enrolled at two campuses in Manhattan and Brooklyn. The new Bronx campus will add another 2,000 students. The college is being built in the Melrose section of The Bronx. Atlantic is also building affordable housing units on the 4.5 acre development site.
Developer: Atlantic Development Group
Cost: $47 million
: The South Bronx Overall Economic Development Corp. is builing 179 affordable housing units at 1800 Crotona Parkway. The development is receiving assistance from a variety of sources.
Cost: $45 million